Note:-Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure. You are in the market for a new refrigerator for your company's lounge, and youhave narrowed the search down to two models. The energy - efficient model sellsfor $1,600 and will save you $40 in electricity costs at the end of each of the nextfive years. The standard model has features similar to the energy efficient modelbut provides no future saving in electricity costs. It is priced at only $1,350.Assuming your opportunity cost of funds is 6 percent, which refrigerator shouldyou purchase? (LO1, LO5, LO7)

Energy efficient modelCost=$1600Annual saving=$40Standard model cost=$1350Cost of capital=6%

have narrowed the search down to two models. The energy efficient mo for $1,600 and will save you $40 in electricity costs at the end of each of t five years. The standard model has features similar to the energy-efficien

have narrowed the search down to two models. The energy efficient mo for $1,600 and will save you $40 in electricity costs at the end of each of t five years. The standard model has features similar to the energy-efficien

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5EA: If a garden center is considering the purchase of a new tractor with an initial investment cost of...

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?
Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).
If a garden center is considering the purchase of a new tractor with an initial investment cost of $120,000, and the center expects a return of $30,000 in year one, $20,000 in years two and three. $15,000 In years four and five, and $10,000 in year six and beyond, what is the payback period?
A mini-mart needs a new freezer and the initial Investment will cost $300,000. Incremental revenues, including cost savings, are $200,000, and incremental expenses, including depreciation, are $125,000. There is no salvage value. What is the accounting rate of return (ARR)?
Your boss asks you to evaluate the purchase of a new battery-operated toaster for his restaurant chain. The toaster [ BT ] costs $22 per unit, and has an estimated useful life of four years. The toaster requires batteries once a week yielding an annual operating cost of $96 per year; salvage value of both toaster and batteries is $12. The alternative is to purchase an electric toaster [ ET ] that will last seven years and costs $150. The estimated annual electric bill for this toaster is $60, and it has an expected salvage value of $15. The company anticipates purchase of 10000 toasters for eternity. Assume a tax rate of 38% and a WACC of 13%. If toaster BT's annual battery costs decrease by $4 and ET's toaster cost decrease by $4 which toaster would you recommend now? a. BT: AEC $61.39 b. BT: AEC $60.81 c. ET: AEC $60.81 d. ET: AEC $61.39 e. none of them
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You are considering buying a 10-year-old machine for $280, or a new fuel-efficient machine for$600. The new machine will save you $5 per month on your fuel bill, and you will be able to sellit for $300 in 10 years. The used machine will have no resale value at that time. Assume theinterest rate is 3% per year. According to the information given, which machine will you buy?
You are in the mail-order business, selling computer peripherals, including high-speed Internet cables, various storage devices such as memory sticks, and wireless networking devices. You are considering upgrading your mail ordering system to make your operations more efficient and to increase sales. The computerized ordering system will cost $250,000 to install and $50,000 to operate each year. The system is expected to last eight years with no salvage value at the end of the service period. The new order system will save $120,000 in operating costs (mainly, reduction in inventory carrying cost) each year and bring in additional sales revenue in the amount of $40,000 per year for the next eight years. If your interest rate is 12%,justify your investment using the NPW method.
Kath is considering investing 500,000.00 to open a Milk Tea Station near a mall. Based on her feasibility study, she can sell 12 large size of milk tea per hour at a price of 25.00 per bottle. She is planning to hire 2 crews, with an hourly rate of 25.00, to manage the store which will operate 8hours per day, 6 days per week, and 50 weeks per year. However, additional out-of-pocket miscellaneous cost is 8,500.00 per month. More so, she wanted to have her crews a 2-week vacation every year with pay. If the capital now is earning 15% annually and she must write off her investment within 5 years with desire rate of return of at least 20% on his investment, would you recommend the investment? Use the rate of return method and annual worth method in making your decision.
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